[2011] UKFTT 278 (TC)
TC01140
Appeal number: TC/2011/00525
Income
tax -- penalty -- section 98A (2) (a) Taxes Management Act 1970 whether
employers annual return Form P 35 filed online or test submission -- whether
reasonable excuse -- whether prompt notification of time-based penalty
FIRST-TIER TRIBUNAL
TAX
LAW
COSTING LTD Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
GUY BRANNAN (TRIBUNAL JUDGE) NICOLAS
DEE
The Tribunal determined the
appeal on 15 April, 2011 without a hearing under the provisions of Rule 26 of
the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default
paper cases) having first read the Notice of Appeal dated 17 January, 2011, HMRC’s
Statement of Case submitted on 3 February, 2011 and the Appellant’s Reply dated
28 February, 2011.
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against a penalty charged under section 98 A (2) (a) Taxes
Management Act 1970 ("TMA") in respect of the alleged late submission
of Form P 35 in respect of the year ended 5 April, 2010.
2. Section
98 A (2) (a) TMA provides that, as regards the first 12 months, a penalty can
be levied of £100 for each 50 employees for every month or part thereof that the
return was outstanding. The amount of the penalty was £400 covering the four
month period from 20 May, 2010 to 19 September, 2010. The first penalty
notification was issued on 27 September, 2010.
3. The
filing date for the submission of Form P 35 was 19 May, 2010.
4. According
to HMRC's records, the Form P 35 for the year ended 5 April, 2010 was filed
online on 2 November, 2010.
5. The
Appellant's practice manager, Stacey Branscombe, appealed against the penalty.
She stated that she had sent the return online on 9April 2010 and she attached
a "Successful Receipt of Online Submission." This Receipt stated in
the Subject Heading "Successful Receipt of Online Submission for Reference
428/LZ04649". The text of the e-mail read as follows:
"Thank you for sending the PAYE End of Year
submission online.
These submission for reference 428/LZ04649 was
successfully received on 09-04-2010. If this was a test transmission, remember you
still need to send your actual Employer Annual Return using the live
transmission in order for it to be processed.
PAYE End of Year Online is just one of the many
online services we offer that can save you time and paperwork....
This is an automatically generated e-mail. Please do
not reply as the e-mail address is not monitored for received mail."
6. In
a statement dated 8 November, 2010, Ms Branscombe said:
"I can confirm that on 31 March, 2010, I
finalised the monthly payroll and prepared all documentation ready to file the
P 35 online. As I could not file the P 35 online until 5 April, I sent a test
submission (e-mail confirmation attached).
On 9 April, 2010 I sent to the P 35 online, this is
sent as a live submission (e-mail confirmation attached).
As I had received a confirmation e-mail I was
surprised to receive a letter from HMRC dated 27 September, 2010 stating that
the P 35 had not been received.
I think the fact that I had sent a test submission
on 31 March, 2010, shows that I know the difference between a live submission
and a test submission -- I would not go back into the software to send a
further test submission a week later.
I have contacted our software provider and have
asked them if they can check if our software as any faults on it, from what
they can see it doesn't. However I have had a new computer since then so they
could only check back to a certain point.
If I had been informed sooner that the P 35 had not
been received correctly it would have been dealt with straightaway. We had
received no indication of any problems prior to the fine being sent to us four
months later (27 September, 2010)."
7. We
note that the e-mail confirmation of 31 March referred to above was, to all
intents and purposes, identical to the one received on 9 April. In other words,
the e-mail confirmation received in respect of the undisputed test submission
was the same as the confirmation received in respect of the submission which
the Appellant maintains was a "live" submission.
8. According
to HMRC's records both the 31 March, 2010 and the 9 April, 2010 submissions
were "test" submissions.
9. HMRC
consulted their colleagues in Online Services asking whether it was possible
for HMRC's computer system to have accepted a live submission as a test
submission. On 3 February 2011 James Matthews of HMRC’s Online Services
replied:
"Simply put, no. There are only two ways for a
return to show as a Test: either the incoming XML contains the Test flag set to
1 or CEPT manually intervene in ERSS /ChRIS and change it (the latter is rare
and is fully auditable and didn't occur in the customer's case).
The HMRC online acknowledgements do
differentiate between Live and Test -- the customer is referring to the
confirmation e-mails, rather than the responses to their software. The response
to their software is immediate and unequivocal. It states that these submission
failed as it was a Test would have been successful if sent in Live.
This online response to their software is legal
receipt, the e-mail is just a courtesy to assist customers.
If they wish to complain that they didn't know they
were submitting Tests prior to submission this should be addressed to their
software provider.
Incidentally, I can confirm that the response to the
second Test submission was also received by their software.
I can also confirm from our tracking that their
software was sent and picked up the success response on 2 November
(there is a handshake" where the software confirms the receipt of the
response). This response was picked up immediately. If it was not displayed to
the customer, again, that's not our fault! They may not have had an e-mail, but
that would depend if they entered a valid e-mail address in their software and,
of course, it's only a courtesy e-mail."
10. The reference to
the ERSS Viewer (the acronym was not explained to us in the papers) is to an
electronic record kept by HMRC of both test and live submissions made by the
Appellant. A printout of the ERSS Viewer for the Appellant in respect of the
relevant period was included in the papers. This shows that the submission on
31 March, 2010 and the submission on 9April 2010 were both test submissions.
11. The ERSS Viewer records
go back to 2005. We noted that in 2006 the Appellant made a "live"
submission on 10 May, 2006. Almost ten minutes later the Appellant made another
live submission which was recorded as a "Fail" - we understand this
was because the return had already been filed 20 minutes earlier. The Appellant
submitted the return in a live submission four days later on 14 May, 2006.
Again, the record show that the submission failed, we understand, for the same
reason.
12. In 2008,
according to the ERSS Viewer records, the Appellant made two test submissions,
the first submission was made on 18 April, 2008 and the second submission was
made on 21 April, 2008. The Appellant then made a live submission six minutes
later on 21 April, 2008. Almost 50 minutes later on 21 April, 2008 the
Appellant made another live submission which failed because, we understand, the
return had already been submitted.
13. In 2009 only one
submission was made, on 23 April, 2009. This was a live submission. No test
submissions were made.
14. In HMRC's
Statement of Case it is stated that the Appellant's submission on 9 April 2010
was a test return. It further states that "the person submitting the
return would have got an immediate response advising that the test submission
failed as it was a test but would have been successful if sent Live."
15. In its Reply to
HMRC's Statement of Case the Appellant drew attention to this statement. The
Appellant stated that it did not receive any such "immediate
response" or any response other than the pro-forma e-mail which failed to
specify whether they test of a live submission was received. The Appellant
asked HMRC to disclose the "immediate response" communication to
which HMRC referred.
16. On 7 March,
2011, HMRC provided the following response to the Appellant:
"When a Test return (that would
otherwise have passed) is filed, your software is provided with the '9001'
response. This is interpreted by your software in whatever way the software
provider has decided to do this. However, they will generally have just used
the wording in the developers' support material "This submission would
have been successfully processed if sent under non-test conditions" or
at least used it as a base for whatever wording they actually display.
For a Live submission that passes validation,
you would get the '9004' response. The wording on that response is "The
EOY Return has been processed and passed full validation" but, again,
how it's displayed to the customer can vary a bit depending on the software's
design.
All this information is on the HMRC website under
'File your Employer Annual Return online: P 35 and P 14s."
17. The Appellant
maintains that it did file a live submission on 9 April, 2010. In particular, a
test submission was made on 31 March, 2010 followed by a live submission on 9
April, 2010.
18. In our view, on
the balance of probabilities, it seems to us that the Appellant mistakenly made
a test submission on 9 April, 2010. HMRC's ERSS computer records are clear.
There is no doubt in our mind that this was a genuine and honest mistake made
by the Appellant. We do not consider that the e-mail acknowledgement
represented a confirmation that a live submission had been made. As noted
above, the Appellant received exactly the same e-mail confirmation when it
knowingly made a test submission on 31 March, 2010. Accordingly, we do not
consider that there was a reasonable excuse for the Appellant's error within
the meaning of section 118 (2) TMA.
19. Accordingly, our
decision as this appeal should be dismissed.
20. The Appellant,
drew attention to another aspect of the penalties imposed upon it which it
considered was unfair. We have some sympathy for this submission. If the online
return (Form P 35) is filed unsuccessfully, for whatever reason, the taxpayer
may not be aware of the default until notified several months later by HMRC (in
this case on 27 September, 2010) when a penalty notice is issued. Since the
penalty is time-based (£100 per month) the notification is made at a time when
a significant amount of penalties has already accrued. We have no jurisdiction
to interfere (our jurisdiction is limited by section 100B TMA), but wish to
record that the system does not seem to operate satisfactorily and the taxpayer
should be notified at an earlier stage that Form P 35 has not been filed by the
due date and that a first month penalty has been incurred. It may well be that
a "9001" response is sent as explained in paragraph 17 above, but we
think a more formal notification would be desirable.
21. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
GUY BRANNAN
TRIBUNAL JUDGE
RELEASE DATE: 28 APRIL 2011
